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Harare -Zimbabwe's forcing of foreign firms to hand over a
51% stake will scare away much-needed investment, with no clarity on how the
cash-strapped state will fund its big stick approach, analysts say.

The government's assurances that its
"indigenisation" policy is not a nationalisation drive is unlikely to
soothe nerves after platinum giant Impala Platinum Holdings [JSE:IMP] capitulated on Tuesday after being
threatened with a state takeover of its local subsidiary.

"It is doing so much damage to the country in terms of
attracting investors for job creation. The policy is very bad," said
Harare-based economist John Robertson.

The controversial law orders foreign-owned companies - such
as mines, banks and retailers - to submit plans on how they will give up a
majority share to locals.

But the government has yet to come up with a clear-cut
explanation how it will pay for the shares taken or even how the process will
be undertaken.

The confusion comes as Zimbabwe seeks massive investments to
rebuild its economy, which was devastated by a violent land reform programme in
which white-owned farms were seized.

A power-sharing government of rivals President Robert Mugabe
and Prime Minister Morgan Tsvangirai formed after 2008 polls ended years of
crisis and stabilised the economy.

Negative ripples from the indigenisation policy have been
felt with key projects put on hold because investors are not keen to invest
without a controlling stake, said analyst Erich Bloch.

"We have lost the potential to attract investment. The
indigenisation policy is ill-advised and damages the economy," he said.

"Which investor would want to invest where half of his
investment will be taken and wouldn't have a say in the running of their
businesses?"

The plan for Zimplats, the local subsidiary of South
Africa-based Implats, transfers 10% of shares to workers, 10% to a community
trust in Ngezi where its mine is located and 31% to a National Indigenisation
and Economic Empowerment Fund.

The companies are meant to be compensated, but questions
have been raised about how Harare will be afford to pay for the shares in the
local arm of the world's second-largest platinum miner.

The Treasury has even said the country cannot hold elections,
which Mugabe is pushing to hold this year.

"I think most of them are not going to get their
payment or they will have to wait for many, many years to get their payments
for the shares taken," said Bloch.

"This process is politically driven and it's being used
to capture votes ahead of elections."

David Chapfika, chairperson of the indigenisation board,
told AFP that discussions are ongoing to determine the value of shares in
different companies."We are still working on the commercial value and
sovereign value of the resources, we haven't made a decision."

But Finance Minister Tendai Biti last week said the shares
taken up from foreign companies must be paid for. "This is not
nationalisation, money will change hands," he said.

The local shareholding push is one of several areas of
difference in the uneasy unity arrangement.

Tsvangirai says it will push away investment, while
88-year-old Mugabe calls it "the next stage of our economic
emancipation" after nearly 4 000 white-owned farms were seized in land
reforms. Mugabe has threatened to nationalise companies that refuse to comply
with the law.

There is also controversy over the state's role in the
eastern diamond mines over funds transparency, with profits said to prop up
Mugabe's Zanu-PF.

University of Zimbabwe professor Anthony Hawkins said the
law will send "negative signals to potential investors" with the
pressure put on Zimplats likely to push others to follow and hand in their own
plans.

"If the biggest player on the block, Zimplats, is
complying then you are going to see the smaller companies doing the same,"
he said.

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